(Bloomberg) -- Mexican President Andres Manuel Lopez Obrador’s relationship with the country’s business elite is rapidly deteriorating over the response to coronavirus and his decision to back a local referendum to shutter a partly built $1.5 billion beer plant just as the economy is on the edge of a precipice.
On Monday, Lopez Obrador backed a weekend public consultation where the population of Mexicali, on Mexico’s northern border, voted to revoke operating licenses from a Constellation Brands Inc. brewery. The president justified the cancellation saying he needs to “listen to the people” even though participation was just under 5% of registered voters.
Business leaders say it’s a self-inflicted wound that will deter investment into Mexico amid a global market rout that has sunk the peso to a record low. The Consejo Coordinador Empresarial, the country’s top business lobby group known as the CCE, slammed the government’s position in its harshest language used yet against the Lopez Obrador administration.
“The signal that Mexico sends to the world is that the law is not respected here, and that there is no guarantee whatsoever for those seeking to invest, generate employment and development in our country,” the CCE said in a statement.
Constellation Brands sells Corona and Modelo beer in the U.S. market. In the rest of the world, those brands are owned by Anheuser-Busch InBev NV. Criticism of the plant has centered around the use of water in the extremely arid region and the optics of using that resource for a product that’s then exported. Lopez Obrador’s top water official has said, however, there’s enough water to support the plant.
MEXICO INSIGHT: Already Weak Economy Vulnerable to Virus Shock
The relationship between AMLO, as the president is known, and Mexico’s business community is complicated, even if both sides have generally strived for a conciliatory tone. A populist who spent all his political career decrying the rich and powerful, Lopez Obrador won in a landslide election on a promise to break up crony capitalism and put Mexico’s poor first while keeping the nation’s longstanding pro-business stance.
The harsh rebuttal marks a potential fracture to the entente seen in the first 16 months of the new government. The CCE, led by Carlos Salazar, has become one of the main intermediaries between business leaders and Mexico’s president.
In a video press conference on Wednesday, Salazar said there was no “rupture” with the government. The vote, however, had been a “totally mistaken exercise” and there were signs government officials had mobilized votes against the project, he said.
“On all fronts, the vote was illegal,” Gustavo de Hoyos, head of another business group called Coparmex, said during the same conference. “The biggest damage is the reputational damage to the country.”
The plant cancellation adds to the president’s pattern of putting political ends over property rights, even it there may be adverse economic effects. Lopez Obrador canceled a partly built $13 billion airport even before taking power in December 2018. He then challenged private sector gas pipeline projects, an issue that was later settled after negotiations with companies. His government has also said it could cut subsidies from private solar and wind parks, an issue that remains outstanding.
“Just when you think the Mexican president is ready to make the right decisions for the long-term prosperity of the Mexican people, he shows you how incredibly stubborn he can be,” said Duncan Wood, director of the Wilson Center’s Mexico Institute in Washington.
“The spillover effect of the Constellation Brands project is going to be huge,” Wood said. “This is just gonna frighten investors even more than they have been already.”
Lopez Obrador’s press office didn’t respond to a request for comment. Earlier Wednesday, Lopez Obrador suggested there may have been wrongdoing involved in the beer factory’s permits, adding that he was not concerned about driving off investment.
Constellation Brands CEO Bill Newlands said in a statement on Tuesday that the company “will continue working with local authorities, government officials and members of the community on next steps related to our brewery construction project in Mexicali and options elsewhere in Mexico.”
Lopez Obrador has also been criticized recently by business leaders over his handling of the coronavirus crisis and his refusal to implement stimulus plans to boost a plunging economy. This is a departure from other governments around the world that are rushing to shore up confidence as the virus has killed thousands and disrupted daily life for billions of people.
Mexico is facing widespread bankruptcies amid small- and medium-sized firms if it doesn’t offer a more robust plan to support them as parts of the economy shut down, said a former top government official from the previous administration who now represents the private sector. He requested anonymity in order not to disrupt talks with the government.
The economy is now seen shrinking 3% this year after a small contraction in 2019, with some analysts warning that the slump could mirror that of the so-called Tequila crisis in the mid-90s, when a currency devaluation sparked capital flight, tanking the nation’s economy and wiping out savings.
Carlos Serrano, chief economist for BBVA Mexico, said the Constellation Brands vote was a “worse sign for investment than the cancellation of the airport itself.” Serrano said in a video conference on Wednesday a poor response by the government could deepen the coming recession.
Business leaders have become increasingly concerned by the president’s tone in recent days. Instead of a coordinated response from Lopez Obrador’s government -- as seen in Latin American peers like Chile -- they received a lecture earlier this week from Mexico’s president about how there would be no bailouts or tax forgiveness for the private sector during this crisis, as Mexico’s previous “neoliberal” governments had done.
“They want us to throw around spending like in the past. Every time there was an emergency: throw money. No, we have to take care of the budget,” Lopez Obrador said Wednesday, repeating his austerity stance. He did say he would offer low or no-interest loans to small businesses.
Read More: Mexico President Rules Out Company Bailouts, Requesting IMF Line
“We need coordination from authorities,” said Carlos Gonzalez, head of research at Mexican brokerage Monex. “What we have are disjointed actions.”
(Adds comments from business leaders in paragraph 7, Constellation Brands statement in paragraph 12 and economist’s comment in paragraph 17)
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